Bonus Incentives Can Be Rewarding In More Ways Than One
People perform better when they have goals. They perform even better when they are members of a team working to achieve team goals.
Both President Trump and the Republican Study Committee have proposed relying more on employee bonuses as a step in shifting to “a more efficient, effective, and accountable government.” Coincidentally, John Kamensky recently posted a column on accountability, “Performance Management: The Emphasis on Accountability,” that referred to the 1988 Government Performance and Results Act, which aimed to address the decline in the public’s trust in government. Today, public trust is lower than it was in the 1990s.
The Bush administration doubled down on accountability by introducing public scorecards using a red-yellow-green stoplight approach to highlight agencies progress in meeting their goals. OMB deliberately made it difficult to earn green scores. The scoring system was described as “shame and humiliation.” To borrow a phrase made famous by Kermit the Frog, they didn’t want "Bein' Green" to be easy.
Two decades later, however, accountability in government is still somewhat hazy. Reports and anecdotal comments suggest that performance data are used primarily for reporting and not for managing operations; that is, agencies are not relying on data to initiate corrective actions to address problems. In 2017, the Office of Personnel Management released a solid, although lengthy, reference for managers, A Handbook for Measuring Employee Performance, that discusses the use of data for planning and managing performance. However, the inflated ratings suggest metrics are not used effectively to plan or assess performance or to hold individuals or work groups accountable.
The answer from the private sector is the use of goal setting, with incentives to reinforce the importance of performance and confirm accountability. People perform better when they have goals. They perform even better when they are members of a team working to achieve team goals. When they are involved in the planning, they commit and accept accountability for goal achievement. Performance planning in business is based on departmental, team and individual goals defined with metrics. Its routine; its textbook.
The phrase “pay for performance” is used to refer to both salary increases and cash incentive awards. Linking employee salary increases to goal achievement contributes to a shared focus on performance. However, true high performance is triggered by the collaboration of engaged employees—teamwork, not just the individuals who stand out. It's for that reason that group or team incentives are far more powerful.
Cash incentives linked to achieving goals are used at every level in the business world. Incentives are also widely used in the management of healthcare organizations. There is little question that well designed incentives can be a powerful tool in improving performance.
Yes, government is different and incentives would not be appropriate or effective in every context. But there clearly are operations where performance improvement is needed and incentives could prompt improved results. One example is customer satisfaction. Government often scores lower than other organizations and a team/group incentive tied to improved satisfaction scores could prove useful.
One obvious point—the badly inflated performance ratings are not suited to managing cash awards. The ratings mask the few truly outstanding performers. If there is increased emphasis on discretionary awards—those not based on valid ratings—the practice will become problematic in the transparent world of government.
Team or group incentives linked to metrics would be a far better answer. As the following story confirms, they can be planned, implemented, and refined with enthusiastic employee support.
Goal Sharing in the Federal Supply Service
This is a success story: In early 2000, a unit of General Services Administration, the Federal Supply Service, embarked on an initiative to improve performance. A core element of the plan was the development of a so-called goal sharing incentive plan. That is a scheme where all team members are eligible for cash awards based on performance relative to team goals.
The history of group incentives goes back to the mid-1880s and the early profit-sharing schemes. Profit sharing plans proliferated and were joined by a similar concept, gain sharing, in the 1930s. Gain sharing is based on sharing savings in labor costs. Executive and management incentives are based on the same idea since all participants benefit when their company is successful.
FSS was then one of three operating services within GSA. It was organized around five diverse business lines. There was also a central support team that provided expert guidance and services to the business lines. In total, FSS provided federal agencies with services and supplies worth more than $27 billion a year. Employees in each team were eligible for cash awards.
The planning started in early 2000 when the FSS Management Council decided to develop a balanced scorecard supported with a performance metrics system to provide the foundation for strategic and business planning. The scorecard is based on five broad goals: financial accountability; best value for customer agencies and taxpayers; operational efficiency; maintaining a world-class workforce and workplace; and carrying out social, environmental, and other responsibilities as a federal agency. Also, the measurement system included benchmark comparisons to other government or commercial enterprises engaged in similar work as well as to prior FSS performance.
Eight teams were created, comprising over 85 mid-level employees from across the organization, to identify the measures and operations important to the agency's continued success. The Office of Enterprise Planning led the effort internally, and the groups met throughout the summer and fall of 2000, identifying over 200 existing and new "perfect world" measures for all FSS business areas and support offices. The measures were grouped and aligned with the scorecard goals; further deliberations enabled the groups to pare the list down to 22 measures; and the organization adopted the final scorecard with the performance measures in May 2001.
For fiscal 2002, 12 of the 22 measures were identified for defining performance targets and assembling performance data. This step involved the refinement of measurement methodologies, development of a performance database on trends across FSS and on comparable organizations and setting a performance target or goal for each measure. Top management entrusted the teams to finalize the measures and goals for the year. Limiting the number of measures is important.
Each measure had a stretch target level of performance, a minimum or threshold level, and a maximum expected level. That defined a measurement scale for each metric. The measures were weighted and at year end actual performance levels were combined to produce an overall measure for each business line and the support group. The combined measures determined the year end payouts.
The potential awards were planned so all FSS employees could expect a small payout depending on agency results—that was political—and for performing as expected and budgeting the planned payouts were 5%. Actual payouts were planned in a range (around 5%) to control costs and minimize possible reactions to avoid having teams earn significantly more or less than others.
For the year, the agency improved performance toward its "stretch" targets on 75% of the measures. In November 2002, an all-hands meeting took place to announce and celebrate the awards in Arlington, Virginia, followed by similar regional meetings across the country.
The agency's success in reaching and sometimes exceeding the targets was striking. The level of shared support and excitement expressed at the November celebration was also striking. The cash payouts are an important part of the story, but it is apparent that employees were also excited about what they accomplished together.
Perhaps most striking is that GSA unions initially opposed the introduction of incentives but after seeing the reactions to the payouts advocated the extension of the plan to all of GSA. Unfortunately, GSA was then experiencing problems with another unit focused on technology, and following a reorganization, new management terminated the plan. A promise of “extra” compensation is often politically incorrect.
Experience confirms that group or team incentives can:
- Unite group members to focus on goal performance
- Raise performance levels
- Contribute to cost savings
- Motivate even angry, recalcitrant employees
- Secure employee expertise to solve problems
Significantly, the dollars are less important than the potential swing in payouts and the challenge of scoring high on the measurement scales. Accountability is unstated but accepted. As long as employees believe the targets are fair—their involvement in defining targets is important—and have the autonomy to tackle operational problems, they will accept the challenge.